Energy White Paper 2012: The challenge of transforming to a clean energy future

29 November 2012

The Energy White Paper released earlier this month forecasts dramatic change to Australia’s electricity generation sector as we move to a clean energy future. Achieving it will be challenging given the significant role that CCS technology is to play in that energy revolution. The White Paper also leaves the door ajar on nuclear energy which future governments may need to embrace to realise Australia’s energy transformation.

Coal currently accounts for 75% and gas around 15% of electricity generation in Australia.  The White Paper projects a significant reshaping of the energy mix with renewable energy to account for at least 20% of electricity generation by 2020, rising to around 40% by 2035 and potentially up to 85% by 2050.  

While the White Paper emphasises that the later two projections (which are based on recent modelling undertaken by the Bureau of Resources and Energy Economics) are highly qualified, the magnitude of the estimated change is immense.  Achieving it will require more than $200 billion in new generation investment between now and 2050, including $50-$60 billion in gas and $100 billion in renewables.

Australia’s clean energy transformation will be driven by the Government’s Clean Energy Future Plan, the central elements of which are a price on carbon (providing a price signal to drive clean energy investment) and the Renewable Energy Target (providing mandated market share for renewable energy). 

There are three interesting implications of the transformation to a clean energy economy which arise from the White Paper.

The first is that it will be very difficult to meet clean energy targets without successfully commercialising carbon capture and storage (CCS) technology.  The White Paper notes that fossil fuel fired generation with CCS could contribute 29% of Australia’s electricity generation under the “85% renewable energy at 2050” scenario noted above.  That would make it the largest “clean energy technology”, with large scale solar the next biggest with a 16% contribution. 

Given there are no significant Australian CCS plants in operation today, this will be an enormous challenge.  To facilitate the development of CCS technology, the Australian Government is committing significant funds in support of large-scale demonstration and small to medium scale CCS pilot projects and, by June 2013, will have developed a CCS Roadmap for Australia to 2030.

Second, there may be a justification for nuclear energy generation within Australia in the future.  The White Paper confirms that the Government does not support the use of nuclear energy in Australia.  However, it notes that future Australian governments might not hold this view and that the strongest justification for developing nuclear energy would be a failure to commercialise other low-emissions technologies in time to meet long-term global and national emission reduction objectives. 

Given the significant role that CCS is earmarked to play in Australia’s clean energy future, it may be that nuclear energy is the fallback if CCS technology is not successfully commercialised.  The White Paper suggests that a decision to adopt nuclear energy would be required 10 to 15 years ahead of operation, meaning that a decision would be needed in the later part of this decade if deployment was required by 2030 or 2035.

Finally, the White Paper acknowledges that increasing the level of renewable energy generation poses some challenges for the electricity market itself.  The growth in renewable generation may make it harder to maintain efficient dispatch and effective price signals for investment.  The subsidy provided by the Renewable Energy Target allows large-scale renewable energy generators to bid into the market at lower marginal rates than might otherwise be the case.  This has the potential to alter bid stack and market clearing price outcomes in ways the White Paper acknowledges are not well understood. 

High levels of intermittent generation from wind or solar energy may also pose challenges in balancing supply and demand in the system.  While the White Paper concludes this is manageable at current and projected levels, it notes in the longer term additional backup capacity or innovative system management and storage solutions may be needed. 

In summary, the White Paper forecasts dramatic changes to Australia’s electricity generation sector over the next three decades.  That transformation is not without risk, particularly given the reliance placed on CCS. It will be interesting to see whether the ambitions of Australia’s clean energy future are realised in the manner contemplated by this White Paper.

The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.

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Andrew Chew

Partner. Sydney
+61 2 9210 6607


Clare Corke

Partner. Brisbane
+61 7 3228 9318


Michael MacGinley

Partner. Brisbane
+61 7 3228 9391